This invention relates to the processing and management of securities transactions (trade management) and more particularly, to a method and system which provides a measure by which the performance of the trade management process can be evaluated.
A transaction is a process by which two or more parties exchange property (real property, goods, services or securities) for value. Thus, for example, a good (such as a book) may be purchased for an agreed price or an interest in a company in the form of stock may be purchased from a company or through a broker. After the parties to the transaction agree to enter into the transaction, the trade management process begins whereby the parties make arrangements to transfer the goods (or title thereto), securities or provide the services and transfer the finds to close the transaction. This process can also include independent third parties such as escrow agents and custodians who hold the property or payment of one party in anticipation of the transfer.
In simple transactions such as the sale of a book for cash, the transaction is essentially initiated and closed simultaneously, wherein the buyer takes title to the book at the same time the seller takes possession of the payment. In the case where the book is sold on credit, the buyer takes title in the book, but the seller must process the credit slip to receive payment at a later date. Any delay in the processing of the credit slip delays the payment and seller bears the burden of not having use of the funds associated with that sale. In addition, the transaction is not settled until the seller receives payment and seller bears the risk that the transaction may not get settled, i.e. that payment is never received.
In more complex transactions such as the sale of securities, the parties initiate the transaction according to exchange rules and agree to the settle the transaction at a later time. Typically, the process can be divided into a sequence of predefined steps involving the transfer of information needed to settle and close the transaction. For example, in securities transactions, the orderer, who can be either a buyer or a seller, issues a trade instruction to a broker/dealer and broker/dealer executes the trade and sends a notice of execution to the orderer. The orderer then transmits the trade details and allocations to the broker/dealer who can either accept or reject the trade details and allocations and transmits the acceptance or rejection back to the orderer. If the trade details and allocations are accepted, the broker/dealer provides additional information related to the trade and transmits a trade confirmation to the orderer. The orderer validates the information included in the trade confirmation and responds with an affirmation—representing the formation of a legally binding contract for the transaction. Both the orderer and the broker/dealer then transmit the trade to their respective settling agents whom arrange for the instructed exchange of cash and securities on settlement date.
There are third party organizations and entities that provide as a service, a system for facilitating the management of these transactions. These systems define the trade management process as a series of steps requiring the transfer and reconciliation of information between the parties toward settlement of the transaction. For the sale of consumer goods, credit card companies and consumer banking institutions provide the systems which can use electronic funds transfers to settle credit and debit based transactions. For the securities markets, Thomson Financial Electronics Settlements Group, the assignee of the present application provides its OASYS™ and OASYS Global™ systems which facilitate the transfer of post-trade information used in the settlement of securities trades in U.S. and foreign markets, respectively. These systems are described in U.S. Pat. No. 5,497,317 assigned to the assignee of the present invention, which is hereby incorporated by reference in its entirety. These systems facilitate trade management by providing transaction and information services which facilitate the electronic exchange and agreement of trade information between trading parties following the negotiation. These services also store information which may be necessary for settling a trade and enabling that information to be transferred to the participants to the transaction (the orderer, the broker/dealer and the custodian) in order to close the transaction. As disclosed in the prior art, without these electronic systems, the information needed by each party would have to be exchanged manually, i.e. by a patchwork of telephone, facsimile and proprietary communication systems.
In the global securities markets, the settlement of securities transactions (i.e. the exchange of securities for payment) carries with it an inherent risk directly related to the length of time between trade and settlement. Markets worldwide have attempted to standardize this settlement cycle to within three days of the trade date (i.e. T+3 days) with an ultimate goal of shortening to T+1 or T+0. However, settlement cycles worldwide continue to range between T+1 and T+45. Given the risk, the organizations involved have mutually agreed to a specification that defines the information that needs to be conveyed between parties to a trade in order to facilitate post trade processing and settlement. In some instances, these types of systems and the organizations that operate them are regulated by various government and private agencies. For example, the Securities and Exchange Commission regulates transactions involving the transfer of securities and the exchanges that operate the markets where securities are traded. As of Jun. 1, 1995, the Securities and Exchange Commission has mandated that U.S. securities must be settled within three days of the trade date, (T+3). Prior to that date, U.S. securities had to be settled within five days of the trade date (T+5). Thus, transactions that are not settled within the time frame mandated by law result in settlement failure and represent a significant risk to both brokers and traders.
While the move from manual and paper based notification and confirmations to electronic systems have helped to ease the burden and facilitate the post-trade process, there is currently no objective means for evaluating the performance of the parties involved or the system as a whole. The participants do not have a means to objectively evaluating their own performance as well at that of their counterparties. Specifically, orderers and broker dealers do not have a means for objectively evaluating the performance of their trading counterparts nor do they have a means for objectively evaluating their own are performance relative to their peers or the market as a whole.
Accordingly, it is an object of this invention to provide a method and system for measuring or evaluating the performance of the participants to the post-trade process associated with the settlement of one or more transactions.
It is another object of this invention to provide an improved method and system for measuring or evaluating the performance of the participants to the post-trade process associated with the settlement of one or more transactions.